Asset managers in China have been cautioned of the dangers of Ponzi scheme that may arise from pooling funds, after the joint venture of Citic Trust and Citic-Prudential Fund Management were penalized for violating rules against cash pooling, the Asset Management Association of China said on Thursday, May 5.
Bloomberg reported that the association made the announcement on its website and said that Citic-CP Asset Management, known for marketing Uber Technologies Inc. shares in China, has been suspended for six months from issuing new products due to the violations.
Investors could be at risk in cash pooling schemes that also occur in scams such as the Ponzi scheme, the report said.
The association also reminded asset managers who invest in securities to refrain from operating cash pools as it vowed to cooperate with the China Securities Regulatory Commission to rid the industry of the practice.
"Strengthening investor protection has got to be a good thing," Keith Pogson, senior partner for Asia-Pacific financial services at Ernst & Young LLP, said.
China has made efforts to clean up the finance industry, which has been beset by rising problems in investment firms and online lenders. In December, more than 900,000 people have reportedly been victimized by Internet lender Ezubo in the biggest-ever Ponzi scheme, defrauding its victims of $7.6 billion in 18 months.
In March, the China Banking Regulatory Commission stepped up monitoring of trust companies with cash pools as the focus.
In its statement on May 5, the asset-management association called on asset managers to avoid the so-called "gray area," adding that cash pools may pose financial risks that could create damage in the long run.
Citic-CP Asset Management, which sells wealth management products to wealthy investors, showed in August last year that it's marketing Uber shares to Chinese who would like to invest a minimum of 3 million yuan ($461,000) each.
According to a separate statement from the industry association, the breaches involved pooling money associated with three types of asset-management products: the first involves a daily redemption of investment, the second on a monthly or quarterly basis, and the third more than a year of redemption.